Question

Select the correct response for each of the following.1. Lear Company ceased doing business and is in bankruptcy. Among the claimants are employees seeking unpaid wages. The following statements describe the possible status of such claims in a bankruptcy proceeding. Which is the incorrect statement?a. They are entitled to priority.b. If a priority is afforded such claims, it cannot exceed $5,000 per wage earner.c. Such claims include wages earned within 180 days before the filing of the bankruptcy petition but not to exceed $10,000 in amount per wage earner.d. The amounts of excess wages not entitled to a priority are mere unsecured claims.

2. The highest priority for payment of unsecured claims in a bankruptcy proceeding isa. Administrative expenses of the bankruptcy.b. Unpaid federal income taxes.c. Wages of each employee up to $10,000 earned within 180 days before the petition.d. Wages owed to an insolvent employee.

3. The order of payments for unsecured priority claims in a Chapter 7 bankruptcy case is such thata. Tax claims of governmental units are paid before claims for administrative expenses incurred by the trustee.b. Tax claims of governmental units are paid before claims of employees for wages.c. Claims of employees for wages are paid before administrative expenses incurred by the trustee.d. Claims incurred between the filing of an involuntary petition and appointment of a trustee are paid before the claims for contributions to employee benefit plans.

4. Narco is in serious financial difficulty and is unable to meet current unsecured obligations of $30,000 to some 14 creditors who are demanding immediate payment. Narco owes Johnson $5,000, and Johnson has decided to file an involuntary petition against Narco. Which of the following is necessary for Johnson to file validly?a. Johnson must be joined by at least two other creditors.b. Narco must have committed a fraudulent act within one year of the filing.c. Johnson must allege and subsequently establish that Narco’s liabilities exceed its assets upon fair valuation.d. Johnson must be a secured creditor.

5. Your client is insolvent under the federal bankruptcy law. Under the circumstancesa. So long as the client can meet current debts or claims by its most aggressive creditors, a bankruptcy proceeding is not possible.b. Your CPA firm need not disclose such information—that is, insolvency—in the financial statements so long as you are convinced that the problem is short-lived.c. A transfer of assets to a creditor less than 90 days before filing a petition may be voidable.d. Your client cannot file a voluntary petition for bankruptcy.